Preliminary Analytical Procedures
1. The investigative method corresponding to the fiscal information of the DIPL could be facilitated in the groundwork of the audit plan. Such an arrangement can be done in a specific way, focussing on the guidelines, which is important to be complied to at the time of undertaking of the audit. Chiefly, the assessor is enabled to maintain the total amount of the audit at a significant level which assists in the reduction of the thought processes related to the clients (Zureigat 2015). The diagnostic approach to the financial statements of the DIPL shows the information dissemination method from it. Such an evaluative method, is possible to be conducted by the use of a number of methods and techniques. With the help of the evaluation analysis method with regard to the financial announcements, several accountants as also economic analysts can use the financial announcements to understand and evaluate them to arrive at crucial business decisions (Barr-Pulliam et al. 2017).
The type of the common sizing analytic method allows the fiscal announcements assessment to a common point of reference. This causes the possible contrast of the fiscal statements in association to the several items lines stated in the financial report along with the method of reporting. As an example, it can be said that, the registration of the items like the assets, liabilities as well as the equity of the owners in the fiscal reporting of the company along with the investigational digression form the normal scenario (Bayer and Cowell 2016).The procedure of benchmarking is considered as a fiscal procedure and it should be utilised for the assessment of the audit plan. The variance of the original financial declaration from the basic enables the deviation understanding as well as the evaluation of the recognised variance reason. Along with this, the ratio analysis can be adjudged as a suitable analytical method which can be used for contrasting the fiscal declarations along with the assessment of the audit plan (Bepari and Mollik 2015).
The results of the choices of planning, related to the audit and its planning are influenced majorly by the analytical method of disseminating the sources from the financial reports. The following report is considered:
|
Particulars |
2013 |
2014 |
2015 |
|
Solvency ratio |
0.62 |
0.44 |
0.21 |
|
Profit margin |
0.068 |
0.60 |
0.06 |
|
Current ratio |
1.42 |
1.46 |
1.50 |
The table shown above states the present DIPL ratio which has improved over the years. On the other hand, it can be said that the profit margin has been seen to change rapidly all over the time periods. Taking the assistance of the specific ratio, the net profit of the specific company, can be compared with the total generated revenue (Bryce, Ali and Mather 2015). However, there is a chance of carrying high value to the assessor in obtaining an overview of the statement regarding the fact that the expenses are higher or lower as also regarding whether the management requires budget reduction as also its total expenses. Any favourable or unfavourable alterations in the ratio can be utilised as a factor for the reference in order to ascertain the soundness of the financial condition of the DIPL. For example, the calculated solvency ratio in the above table helps in revealing the feasible as well as the unrealistic trends in the total fiscal position of the specific firm. In a similar manner, the contrast of the ratio could give an insight into the long as well as short term business necessities. Thus it is possible for the auditors to gain an insight into the DIPPL’s relative position over the entire time period along with the evaluation of the factors which leads to a position of the organisation which is not desirable (Cason, Friesen and Gangadharan 2016).
Evaluative methods for Financial Reports
2. Many noteworthy factors are intrinsic in the auditing procedure that comprises the incident of materialistic misstatements in the monetary declarations of a particular unit. It can however be said that different natures of both organised as well as unorganised risks highlighting the method in which the economic misstatements exist in the fiscal announcements of the organisation. In addition to this the identified risks may be because of the fiscal as well as non-fiscal factors that can subsequently stop a particular unit from reflecting a view of the financial announcements. Depending on this information from Devos and Zackrisson (2015), the obtained risks may be related to many omission risks related to the risks of any unimaginable errors of particular bookkeepers. Thus it can be stated that it is the business risk for the business functions of the DIPL.
Apart from this, the workers of the DIPL are not experienced enough and do not have the required skill that has led to the total inherent organisational risk. In addition to this, such a lack of experience can cause occurrence of errors or mistakes, increasing the innate risks. This is because of the fact that the workers contribute a significant part of the company and it is not practicable for the firm to be sure about its success in the future without the proper amount of inputs from the employees. Apart from this, the other aspects contributing to the innate risk can be divided into numerous segments like the external as well as the environmental aspects as also the falsified exercises. The ecological aspects showing the method towards the innate risk constitutes the speedy alterations where the matters can possibly be connected to the inventory and its valuation, the immense market competition as also the lack of enough money. Barring this, there is the possibility of materialistic misstatements which can direct the DIPL towards the innate risks in the coming years.
The analytic procedure of the existing situation of the DIPL shows the fact that the issues as well as the complexities relating to the succession of the CEO comprise the innate risks as well. At heart it can be said that the CEO succession is vastly different as the candidates are individualistic. Thus the procedural commencement without adhering to the said strategies, delay in the initiation process as well as the ineffective connection in case of the CEO as well as the staff may result in an intrinsic risk (Zureigat 2015).
The case analysis which is given implies that the implementation procedure of the IT system has led to several issues. DIPL has employee shortage for managing the implementation procedure as also the method of installing the reconciliation and the testing process which should genuinely be done before the end of the time period (Stephenson et al. 2015). In addition to this, the previous assessment stated was recorded in a specific manner as viable. Thus it results in the materialistic misstatements due to the inherent factors where there is a deletion error in a definite fiscal announcement.
Inherent risks in DIPL’s Business Operations
The staff members of the DIPL, are required to follow an appropriate sequence for registering the receivable accounts as well as the ledgers associated to the receivable accounts. Along with this, bank reconciliation is necessary to be appropriately recorded as well (Mumford et al. 2014).
It can further be said that the registration of revenue found form the e-book as also taking into account the reprinting of the textbook had a chance of possibly resulting in the inherent risks due to the intricacies associated with the procedure. Finally, the valuation applicable to the raw materials at an average cost is very much below the present cost of paper.
The inherent risks can be adjudged as the receptiveness of a specific assertion in relevance to the material misstatements and are shown precisely as follows:
It is due to the mounting burden on the DIPL and its staff that it has resulted in the imprecise bookkeeping. As a result, numerous characteristics have taken place including the propensity in the cash flow encountering, low level of liquidity as well as the operational results (Nalewaik and Mills 2016).
Based on the case study, the management procedure of the DIPL does not possess the right amount of integrity which is wanted for readiness towards any possible loss in the business community (Milonas et al. 2016).
Sometimes, it might occur that there is the existence of incentives for the management. As a result, the fiscal announcements have several misstatements.
DIPL contributes to the most valuable growth in the financial as well as the situations of a competitive nature. Furthermore, these factors may have an impact on the inherent risks of the business units for the method of audit planning evaluation in a significant fashion (Gani, Wijeweera and Eddie 2017).
Based on the findings in Saad (2014), the fraud risks had a possibility of resulting in extreme losses of the assets due to huge amount of fraudulent activities. The deficiency of motivation or the drive in the workforce because of the additional pressure of work on the staff, can have a chance of causing significantly increased risks of fraud. Further, strong amount of pressure is put on the management of the corporation due to the announcement of the particular fiscal results in an effort to avoid the generation of the guarantees.
The major types of risks identified in the reference of the DIPL’s business operations are briefly stated as follows:
|
Types of risk |
Identification |
|
Engagement of entire work force in fraudulent performances |
The only risk of fraud that might take place due to the DIPL’s business operations in the engagement of the workforce in the activities of a fraudulent nature because of a better nature and a better dissatisfaction level of the employees. The case study of the operations of the DIPL states that the board has put several amount of pressure on the company while acquiring an interesting system of accounting. Such an additional amount of the pressure on the staff, while doing the installation of the new information for the accounting might result in fraud. This implies that the staff may be involved in actives which are fraudulent in nature. These activities might involve managing the behaviours as well as the process of reconciliation in a suitable fashion along with the materialistic misstatements. The case provided shows that the ineffective management of the procedural execution is related to the implementation of the information technology and results in incorrect allotment of various transactions at the end of the period. This results in severe loss due to the misstatements as well as the fraudulent risks. |
|
Method corresponding to economic reporting |
Another fraud risk may confront the business operations of the DIPL in undertaking the risk connected to the financial fraud of reporting into account. At the time of specific situations, it has been observed that the additional information from external financers or the management. This method of expectation is due to achieve the particular targets of different types of goal performance to qualify for getting the debt. There is an increased risk of wrong declarations of an economic nature. Depending on the balance sheet statement of the DIPL, the net revenue of the organisation increased. It was because of the organisations’ failure in maintaining standards that it became ineligible for acquiring the appropriate funds (Graham 2015). |
Based on the case study given, it can be said that the method of understanding related to the inventory valuation of many raw materials at a particular range of average costs is not correct or appropriate. This is because of the fact that the existing paper cost is higher in comparison to the average cost (Gray et al. 2016). The associated risk related to the fiscal reporting might have been recognised by the dissection of the economic statements on the part of the assessors. Benchmarking is nothing but an analytical procedure which can be utilised for the assessment of the audit plan. The actual financial declaration from the standard assists in recognising the deviation and helps in the recognised variance evaluation.
References:
Barr-Pulliam, D., Nkansa, P., Walker, K., appreciate helpful comments from Helen, W., Brown-Liburd, A.G. and Stefaniak, C., 2017. From Compliance to Strategy: Using the Three Lines of Defense Model to Evaluate and Motivate Internal Audit Contributions to Accounting Research.
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Bepari, M.K. and Mollik, A.T., 2015. Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing. Journal of Applied Accounting Research, 16(2), pp.196-220.
Bryce, M., Ali, M.J. and Mather, P.R., 2015. Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness—Evidence from Australia. Pacific-Basin Finance Journal, 35, pp.163-181.
Cason, T.N., Friesen, L. and Gangadharan, L., 2016. Regulatory performance of audit tournaments and compliance observability. European Economic Review, 85, pp.288-306.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326.
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Gani, I., Wijeweera, A. and Eddie, I., 2017. Audit Committee Compliance and Company Performance Nexus: Evidence from ASX Listed Companies. Business and Economic Research, 7(2), pp.135-145.
Graham, L., 2015. Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework. John Wiley & Sons.
Gray, S.E., Sekendiz, B., Norton, K., Dietrich, J., Keyzer, P., Coyle, I.R. and Finch, C., 2016. The development and application of an observational audit tool for use in Australian fitness facilities. Journal of Fitness Research, 5(1), p.29.
Milonas, A., Hutchinson, A., Charlesworth, D., Doric, A., Green, J. and Considine, J., 2016. Post resuscitation management of cardiac arrest patients in the critical care environment: A retrospective audit of compliance with evidence based guidelines. Australian Critical Care.
Mumford, V., Greenfield, D., Hogden, A., Debono, D., Gospodarevskaya, E., Forde, K., Westbrook, J. and Braithwaite, J., 2014. Disentangling quality and safety indicator data: a longitudinal, comparative study of hand hygiene compliance and accreditation outcomes in 96 Australian hospitals. BMJ open, 4(9), p.e005284.
Nalewaik, A. and Mills, A., 2016. Project Performance Review: Capturing the Value of Audit, Oversight, and Compliance for Project Success. CRC Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Stephenson, M., Mcarthur, A., Giles, K., Lockwood, C., Aromataris, E. and Pearson, A., 2015. Prevention of falls in acute hospital settings: a multi-site audit and best practice implementation project. International Journal for Quality in Health Care, 28(1), pp.92-98.
Zureigat, Q.M., 2015. IFRS compliance and audit quality: evidence from KSA. International Journal of Accounting, Auditing and Performance Evaluation, 11(2), pp.188-201.
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